Wednesday, 29 February 2012

Apple is set to eclipse Microsoft and Cisco after hitting a market capitalization of over 500 billion yesterday. While Microsoft reached this number back in 1999, they have been unable to sustain it and now trades at a market cap of 266 billion. At its current market valuation, Apple is now worth more than the country of Poland or, Microsoft and Google combined! Not surprisingly, the market is going crazy for Apple and stock prices are rising.

Unlike Microsoft, I believe Apple will be able to sustain its valuation to reach even greater heights. The electronic juggernaut still has much room for growth through its core businesses - Macs, iPhone and the iPad. Their product lines have been doing extremely well even in the face of aggressive competition, and has been gaining market share rapidly. Not to forget, Apple is intending to launching Apple TV late this year and with it comes even more opportunities. Steve Jobs may no longer be at the helm but the demand for Apple products still remains insatiable. With its brilliant engineers, reputable brand name, consistent stream of amazing products debuting every year, coupled with a loyal customer base - Apple might just take over the world. Where Apple is going, I know I want to be there. What say you?

Tuesday, 28 February 2012

Last Tuesday, we welcomed professionals from the Market Risk Division in Goldman Sachs for an evening event. It was great to hear more about the elusive terms Value-At-Risk and how the new Basel Regulations impacts the various financial institutions on the street. Questions flew fast and furious about the industry and a career in risk management. We were especially honored by the presence of Wu Siwen, our former president who recently graduated in 2011.

On Thursday afternoon, members gathered for a resume workshop run by the board members. Meha and Susan went through the fundamentals of both resume and cover letter writing, stating things to look out for. After which, the E-Board gathered and helped the underclassmen with their resumes, giving specific pointers on how to improve them.

The shareholders of Berkshire Hathaway Inc. might want to reevaluate the stocks in their hand after last Saturday's annual letter. The 81-year-old CEO announced not only his achievements and mistakes during last fiscal year, but also that an unnamed successor of the company has been selected. Although he promised his health condition, people still kept raising question about the identity of the successor and if the company would prosper on the next generation as amazingly as it did in Mr. Buffett's hand. Belief used to be that Warren Buffett's son, Howard, is going to take his position yet the new declaration made this issue more mysterious.

From personal perspective, I am curious about the future life of Berkshire Hathaway as well. As all known, Warren Buffett is always a firm champion of value investment theory created by his professor, Benjamin Graham. He chose companies with potentially large profit margin and undervalued prices to invest such as Washington Post and Coca Cola. So here comes the problem. If his heir carries on his investment idea, is it still possible to find such undervalued stocks today with large capacity? Time has changed and investors' rationale has developed. It's almost impossible to redo Mr.Buffett's miracle on current market. If his successor does not agree to Buffett's value, can he maintain the size and yearly profit of Berkshire? As I said, time has changed. Berkshire is no longer one of the many investing companies as it was forty years ago. It holds rather huge share of the market which means it's really hard to earn a huge amount besides maintaining its regular dividend. If the new CEO holds different opinion, can he protect this huge monster as Buffett did?

Investors will never stop questioning. While Mr.Buffett refused to comment on these issues, whoever will take the position still have a long way to go.

Traders are already feeling the heat from the possible repercussions of the Volckers Rule. While the Volcker Rule struggles to stay alive amidst wave after wave of assaults from bank lobbyists, there is a new threat on the horizon for traders. SEC

Chairman Mary Schapiro is moving to impose fees on every single cancellation

executed on a buy or sell order. High-frequency trading has been under fire for quite some time and the May 6, 2010 “flash crash” did nothing to assuage the criticisms. On May 6, 2010 the Dow Jones fell almost 600 points in 5 minutes (almost nine percent) only to recover minutes later. This brief crash prompted the SEC to implement circuit breakers and ban stub quotes. For Schapiro, however, that is not enough, she wants to attack high-frequency trading at its core.

By levying fees on cancellation orders—which make up approximately 95-

98% of all trade orders—Schapiro hopes to induce trade that does depends

on “the fundamentals of the company that’s being traded” rather than “miniscule

aberrational price move[s].” High-frequency firms say that such regulation would

reduce liquidity in the market, which would drive up costs for borrowing and

acquiring capital. I think while that may be true, not all liquidity is created equal.

Where was this liquidity during the “flash crash”? It disappeared within five

minutes, setting off panic in the markets, which then drove equities even further

down. If anything, I believe it’s a great idea to regulate cancellation orders. It will

force traders to become more careful with their capital. And as Wall Street is apt

to do, they’ll find ways to make it more efficient, which will in return, bring the

liquidity that high-frequency firms fear losing. Hopefully, of a more stable nature.

Monday, 27 February 2012

This past Saturday, I had the pleasure of watching my beloved Liverpool F.C take home the Carling Cup, their first trophy in seven years.Yet the manner in which they won, relying on a missed penalty kick by the opposing second-league team Cardiff seemed too close for comfort. It was the first trophy won by the team following its sale to John Henry and his Fenway Sports Group. And with this new owner, came a new policy of spending, akin to the “sabermetrics” strategy outlined in Moneyball. In the past two transfer seasons, Liverpool has spent over £150 million on new players. Yet they currently place seventh in the Premier League, and barely won the Carling Cup. This is the inherent flaw in association football. As a public, we criticize our respective governments for deficit spending and rising national debts; yet the moment our teams begin cutting costs to even out the balance sheet, we riot. Even for the likes of Manchester United, who have seen tremendous success for the past two decades, fans loathe the team’s owner, the Glazer family, for cutting spending. But I do not think that lack of spending is the problem.

If we look back to last year, for the second half of the season, Liverpool had the best record amongst all teams, rebounding from the bottom of the table to finish 6th after Kenny Dalglish took over as manager.Following that infusion of £150 million? We’re one place below last year. Fenway Sports Group feels pressure to spend to appease fans, and thus tries to maximize spending by buying medium-skilled players at a discount with the occasional big spend like that of Andy Carroll for £35 million. Yet this spending came at a time when the team finally began gelling together, and ultimately broke up the growing chemistry of last year’s team. The same is happening all over England, with the likes of Arsenal, Tottenham, and Manchester United feeling pressure to spend the moment they have a dip in form. And what of their Spanish rival Barcelona, the best team in the world? The likes of Andres Iniesta and Xavi were developed in-house, saving them millions on transfer fees. English football’s youth system trails the Spanish youth academies, forcing English clubs to spend on international talent to cover up this gap. As long as the foundation is weak, English teams will continue racking up debts without success at the continental level. And as long as they continue to underperform against their European rivals, fans will demand more spending. I love Liverpool F.C and am still soaking in the trophy they won a few days ago; however, Fenway Sports Group needs to look only as far as the U.S government to know that spending, even if it is technically “efficient”, is not always the answer. If we look to Moneyball from which Liverpool’s new management molded its financial policies, the book outlines the unprecedented 20 game win streak of the Oakland Athletics under the sabermetric approach. Yet the team never won the World Series. And in the world of association football, it’s always about the silverware.

Sunday, 26 February 2012

Are you interested in sports, entertainment, and finance? Come listen to David Becker, Associate at Inner Circle Sports, a leading global investment and advisory merchant bank focused on the sports, media and entertainment industries. David Becker is responsible for sourcing and executing M&A advisory, capital raising, valuation, consulting, restructuring and investing transactions in the global professional sports industry. Co-sponsored with STEBA.

Saturday, 25 February 2012

On February 29th the European Central Bank will release the results of its second Long Term Refinancing Operation (LTRO) which provides low-interest loans to Europeans banks. Since the announcement of the first LTRO in early December, the S&P 500 has rallied over 8%. Analysts estimate that $668 billion will be dished out, higher than the previous round. The impact on the market likely will be negligible as this announcement has been planned while the first announcement was a pleasant surprise. The ECB has indicated that this likely will be the final round of easing to avoid making regional banks dependent on cheap capital. If this is the case, then the market might be headed for a drop from their current highs as another catalyst will be needed to push markets higher. After previous central bank interventions between QE I and QE II and between the end of QE II and the start of first LTRO, the S&P has lost about 20% which is a trend that does not bode well for the market.

This is my 125th blog entry in the last 25 months. When I started this site, I promised myself that I’d try to do at least 15 entries. My guess is that I would have quit long ago were it not for the many kind emails that I have received. Thanks – I love hearing from people who tell me about their own love of teaching and the challenges they face each day.

Today’s entry is broken into several individual parts.

PART ONE – I travel around the country 3-5 times per year to give teaching programs and presentations. Invariably, at each stop, some teacher will ask in complete exasperation “why should I even try to do better? The students do not appreciate what I do. They certainly don’t appreciate when I try to make them work and think.”

It is very tough to spend the time necessary to move toward excellence if you believe that no one appreciates you. It is hard to put out so much energy if no one cares. I often think deans and department chairs ought to be required to pat as many teachers on the back as possible each semester. However, the people who really benefit from your work are the students. They are the ones who should care the most. Do they truly appreciate your effort? That, as Hamlet says, is the question.

PART TWO – In one particular class that I teach, most of the students are junior accounting majors. It is a challenging course but virtually all of my students are capable. They can learn enough accounting to do well after they graduate. Interestingly enough, it is not the knowledge of accounting that often makes a difference in the level of success they achieve in their chosen careers. It is their ability to supervise others that can really count the most.

Within the first year or two after graduation, they will move into a position where they have to supervise other (younger) individuals. Instead of being responsible for just themselves, they suddenly become responsible for 2-5 associates. Suddenly, it is the ability to do well in that supervisory leadership position that starts to become important. We teach group work and team work in college but we don’t often address supervisory leadership.

One of the problems for them is that they don’t have many role models. If I mention the word “leadership,” they will tell me all about presidents (Roosevelt, for example, or Lincoln) or a great general (U.S. Grant or R.E. Lee) or a corporate executive (Bill Gates or Steve Jobs). But none of those individuals (at least when they became famous) were supervisory leaders. George Washington was not trying to motivate and guide 2-5 people under his direct supervision. Those leaders are on a different planet from the students.

Although it is not exactly the same, the closest role models that my students have for supervisory leadership are their teachers. The teacher walks into the room each day and is responsible for motivating and guiding 10 to 30 students or more. In most cases, how well the students do is largely based on how well the teacher does.

For that reason, I want my students to spend some mental energy thinking about how teachers manage to accomplish what they do. Most college students have been in class for roughly 80 percent of their lives. They have interacted with dozens of teachers in a very direct and personal way. They have observed both good teaching and bad. However, they rarely consider how a teacher works and what makes one person particularly successful. For a young person, who will soon be in a supervisory position, there is a lot that can be learned from their teachers.

I recently started giving my students a series of three exercises to help them consider how a good supervisor motivates and guides the people who fall under their care. The first assignment is simply to pick the best college teacher they have ever had and write a paragraph or two to describe why that person was the best. Notice, I specifically do not use the term “favorite teacher.” That is something entirely different. I want them to focus their attention on what makes a person the very best teacher they have ever had in college.

PART THREE – When I get the results of this assignment, many of the answers are genuinely touching. It is hard to read them without feeling a sense of real pride and admiration for teachers and how they affect the lives of their students. My guess is that the students would never say such things directly to a teacher (heavens, that might be embarrassing). However, in a written assignment, they have a chance to reflect on what a particular teacher did and talk about the impact that the teacher’s work had on them.

I tell the students that they should think a lot but they can keep the written assignment short. They are busy and I don’t want them spending too much time on this one task. Despite that suggestion, many of them write long detailed essays praising the best teacher they have had in college.

Here are just a few quotes that I picked out, almost at random. I have 52 students; I could have given 52 quotes similar to these.

You cannot read these without being proud that you are a teacher. When you read students saying things like this, you realize what a great career you have chosen. Teaching is the most wonderful and important job in the world because YOU have the chance to have this kind of influence. Read these and realize that this is what you have the good fortune to do every day.

--“If I could describe his attitude towards his students in one word, it would be egalitarian. He made each and every student feel as if they were important. Whether you were the best student or the worst student, he still gave equal attention to all.”

--“As for his expectations for the course, he did not hold our hand – he inspired us to do our own research in order to make the connections that would elevate our performance to an A level.”

--“Not only is her class a joy to be in – filled with discussions regarding everything from race to culture shock – she is also a great role model with diverse experiences to back up her advice.”

--“He made each and every student push themselves to the limit and use critical thinking that they had probably never used previously. There were times where I would walk out of that class and I would feel like my mind just got blown. That was partially because of what he had said but mainly because of the amazement I had at how he was able to guide me into thinking in ways that I never known I could do.”

--“The distinction of excellence comes from his ability to connect to and motivate students. He helped me to not only learn the material, but to want to learn the material. This admittedly tough accomplishment was achieved because he made sure to get to know me.”

--“She was patient, especially with someone like me, who is not used to writing papers that do not contain some type of mathematical equation.”

--“He didn’t mock my writing abilities, though they were clearly lacking. Nor did he act discouraged. Rather, he told me he wanted to give me an A, but I needed to do A work.”

--“His passion for his subject is unmatched by any other professor I have had while at the University of Richmond, and it rubbed off on everyone in the class.”

--“Often times we would have long, time-consuming assignments. However, as long as I had shown initiative and spent time thinking critically about a problem, (the teacher) was willing to work with me to understand the concepts that I was applying.”

--“He is extremely friendly and approachable and almost always has a smile on his face. All of his students can see how much he loves teaching (the subject) and this makes them want to work harder.”

--“(The teacher) clearly articulated his expectations and requirements to succeed. He went beyond telling me what to do, but actively pushed and engaged me. His confidence in me, as well as his general desire to see me succeed, drove me to perform extremely well in this class.”

--“She posed challenging and thought-provoking questions in class that made me dig deeper into the text which gave me a better chance to write a paper with substantial content.”

--“We would often get emails from him at 4 or 5 in the morning with very complex Excel models and/or regression methods that helped us better understand and practice using the material.”

--“He focused more on the actual learning of concepts as opposed to memorization and grades.”

PART FOUR – I do not think you can read any of these (or all of the remaining papers that I didn’t have room to quote) and not realize how much students appreciate your hard work. Yes, they will whine and they will complain and they will moan about the work load. That’s human nature. That’s just what college students do. But I’m convinced that it is like strenuous physical exercise. In their hearts, they really want to be pushed to be great and they appreciate it. They might never walk up to you and say thanks but it is clear when they write about their teachers how very much they appreciate the ones who try the hardest and care for them the most.

PART FIVE – My students in this class make up well below 2 percent of the entire student body on our campus. Consequently, there are many, many great teachers around here who they never get a chance to have in class. For that reason, many of our best teachers do not get mentioned because these students had never been lucky enough to be in their classes. However, I want to give a huge shout out to all of the folks who were named by my students. These were students who had been at the University of Richmond for six semesters and felt that YOU were the very best college teacher they had ever had. That just has to feel wonderful. That is the reason you get into this business. You are changing lives in a very positiv way. Congratulations!!!

Thursday, 23 February 2012

Leading Canadian economists and government officials warned in a recent quarterly economic review that escalating consumer borrowing in the country may lead to financial instability in Canada. As a matter of fact, in the third quarter of last year, household debt was at 150% of personal disposable income. Economists believe that this increasing risk is only underpinned by the rising home prices that are largely due to immigration and high demand for homes by the immigrants. From a macroeconomic perspective, I share the same concerns. Assuming the rising house prices is truly due to the large influx of immigrants in recent years, a slight change to Canadian immigration laws may greatly affect the housing prices in Canada. Under the domino effect, the current household debt situation, if affected by the housing price, can lead to a drastic downturn for the Canadian economy.

On the other hand, the specificity rule states that an efficient government policy acts directly as possible on the source of an economic problem. Therefore, I believe it is in the best interest of the Canadian government to implement policies that directly tighten the criteria for lending to reduce risks in domestic financial stability.

Sunday, 19 February 2012

Greece, which is scheduled to pay about 14.5 billion euros, could potentially default on its bonds as early as March 20th if its neighboring European nations and the Central Bank do not act quickly. The Hellenic Republic, if an agreement is reached, would most likely write down the value of private sector bonds up to seventy percent. Although the Greek government passed more pay cuts and reduced pensions, it will not make up for the hundreds of billions in debt due to years of over-consumption. Ultimately, the nation cannot sustain itself solely on bailout funds and bonds; it needs to cut more funds regardless of public outcry to balance out years of spending beyond their means. While the European Central Bank, which owns about thirty to forty-five billion euros worth of Greek debt, will most likely pass the next bailout fund, austerity will be the deciding factor of its fate.

Join Finance Society this Tuesday evening as it hosts professionals from Goldman Sachs. The discussion will center around the topics of regulatory capital and Value-At-Risk (VaR), which have been extremely relevant in the news. Bring your questions and come to learn more about how these rules are affecting financial institutions in the world.

Join Finance Society Thursday during common hour for the Resume & Cover Letter Workshop! We will be walking through some great pointers and tips on how to make your Resume and Cover Letter effective and stand out. Be sure to bring your resumes and cover letters as members from the Finance Society's e-board will be available to sit down and go through resumes individually after the presentation!